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: QUANTITATIVE FINANCE AND STOCHATIC 1 ANSWER ANY ALL QUESTIONS 1. : quantitative Finance and Stochastic...

: QUANTITATIVE FINANCE AND STOCHATIC

1 ANSWER ANY ALL QUESTIONS 1.

: quantitative Finance and Stochastic Processes

July 2020, Test 1

Answer aNy ALL questions

  1. (a) A mineral exploration firm is formed with enough capital to finance 5 explorations. The equipment of particular exploration being successful is 0.25. Assume that the explorations are independent and conform to the properties of the Binomial experiment.

(i)        Find the expected number of successful explorations and its variance.

(ii)       Suppose the firm has a fixed cost of $50,000 and that it costs $25,000 to make a successful exploration. Find the expected total cost of the five explorations.

(iii)      What is the probability that no or one successful exploration is made?

(b) What is the present value of an annuity that pays $200 per month for six years if money is worth 6% compounded monthly?

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